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From Securities Regulation Daily, April 12, 2019

SEC charges investment directors in $1.2 billion Ponzi scheme

By Lene Powell, J.D.

The SEC is going after two investment directors who oversaw an army of sales agents in a gigantic Ponzi scheme that collapsed in 2017, causing hundreds of millions of dollars in losses to investors.

The SEC expanded its case against perpetrators of a massive Ponzi scheme involving Woodbridge Group of Companies LLC, charging two former investment directors with registration violations and fraud. According to the SEC, the directors oversaw the day-to-day operations of the boiler-room scheme, including hiring and training Woodbridge’s sales force and creating an "avalanche" of fraudulent marketing materials and sales scripts. Overall, they were responsible for fraudulently raising at least $1.2 billion from more than 8,400 retail investors, many of them seniors (SEC v. Acevedo, April 11, 2019).

Shell game. Woodbridge Group of Companies LLC was originally in the business of selling structured settlements to investors, including settlements of lottery, annuity, and personal injury payments. When this business declined, the company transitioned at the direction of Woodbridge’s owner Robert Shapiro to selling a new product: a twelve-to-eighteen month term promissory note security, First Position Commercial Mortgages ("FPCMs" and "FPCM Notes"). Returns were to be generated by the high interest rates Woodbridge would receive by funding hard-money loans (i.e., short-term high interest loans primarily secured by real estate) to third-party borrowers. Woodbridge also offered to sell investors securities in certain fund offerings.

In fact, the business model was a scam almost from the start. Nearly all the loans were not made to third-party borrowers but to Shapiro’s 275 shell companies, which had no revenue, no bank accounts and never paid any interest on the loans. The shell companies used investor funds to buy almost 200 residential and commercial properties, on which default was a near certainty, since Shapiro’s companies never made and had no ability to make any payments on the fund notes. The fund entities relied, in classic Ponzi-scheme fashion, on the continuous infusion of new investor funds to satisfy obligations to existing investors.

Manning the boiler room. The scheme was allegedly carried out day-to-day by Woodbridge’s two directors of investment, Ivan Acevedo and Dane R. Roseman. According to the SEC, the defendants "manned the boiler-room" by supervising the company’s nationwide network of hundreds of external sales agents and approximately 30 internal sales agents. The defendants pressured the sales force to meet sales goals set by Shapiro, including ridiculing employees for poor performance and threatening them with termination for missing sales targets or deviating from the pre-approved sales script. The defendants also wrote fraudulent marketing material and appeared in a YouTube video promoting the investments.

As alleged, Acevedo and Roseman were "well aware" that Shapiro’s shell companies were the obligors on the fund notes and knew, or were severely reckless in not knowing, that the companies would not be paying Woodbridge interest as promised. When a sales agent went to Roseman with concerns that Woodbridge was "using money in a cycle," Roseman said there was "nothing to worry about" because investors’ principal was tied up for five years.

Civil and criminal actions. In January 2018, a federal court in Florida ordered Woodbridge, related companies, and Shapiro together to pay $1 billion for operating the Ponzi scheme. In the new complaint against Acevedo and Roseman, the SEC is seeking disgorgement of allegedly ill-gotten gains, with interest, and financial penalties.

In an indictment unsealed on April 12, Shapiro, Acevedo, and Roseman were criminally chargedwith conspiracy to commit mail and wire fraud and substantive mail fraud. In addition, Shapiro was charged with conspiracy to commit money laundering and evasion of payment of federal income taxes.

The case is No. 1:19-cv-21380.

Attorneys: Christine Nestor for the SEC.

Companies: Woodbridge Group of Companies, LLC

MainStory: TopStory Enforcement FraudManipulation FloridaNews

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